When Tennessee business students visited the world's second-richest man, Warren Buffett, at his base in Nebraska last year, they gave him an autobiography of a local mobile homes magnate.

Buffett was seemingly so impressed by the read that his firm, Berkshire Hathaway, splashed out $1.7 billion soon after to buy the magnate's concern.

As a thank-you, the so-called Sage of Omaha gave the 40 visiting PhD students share certificates in Berkshire worth £2,500. 'Treat it as a finder fee,' he told the University of Tennessee scholars.

Buffett can afford the odd grand gesture. Valued at $180bn, his sprawling empire owns large blocks of stock, such as $10bn in Coca-Cola, and is a holding company of 65 subsidiaries, which employ almost 173,000 people.

Now it seems Buffett is moving in on the Square Mile. He is backing a plan that could see him control large chunks of the insurance market, worth tens of billions of pounds. Last week it emerged that Buffett is a 'cornerstone investor' in a bid to consolidate the fragmented syndicates that make up Lloyd's of London. The vehicle, led by City insurance veteran Michael Wade and broker Collins Stewart, is raising £135m on Aim to invest in Lloyd's firms.

In addition to building a significant stake in the Lloyd's market, now profitable after years in the doldrums, the move could see him picking up lucrative re-insurance business - in other words, Buffett will be insuring the insurers.

For Buffett, the move comes at a pivotal time. Many regard his 'folksy' investment philosophy with the awe one might expect to be reserved for an Old Testament prophet. But his disciples have had a bewildering time of late. The 73-year-old has recently been at the centre of political controversy through his backing of Californian governor Arnold Schwarzenegger and Democrat presidential hopeful John Kerry in his bid to defeat George Bush.

Buffett is an adviser to Kerry, having publicly panned Bush's extensive tax breaks for the wealthy and big business, and demanded that multinational corporations stop avoiding tax.

For the last four years he has enjoyed a mesmeric run. His net worth, put at $42.9bn, is now edging towards that of the world's richest man, Bill Gates, whose fortune is put at $46bn by Forbes. Shareholders in Berkshire have, since March 2000, followed in his slipstream. Then the shares were worth $41,300. Today they closed at $90,600.

Buffett spent much of the Nineties derided as yesterday's man. His refusal to invest in dotcom companies because he did not understand them saw his shares slump as the bull market gathered momentum.

But his fortunes revived, in direct contrast to the equities' crash. And as firms went out of business, Buffett hoovered them up at fire-sale prices. Businesses owned by Buffett include furniture, carpets, jewellery, confectionery, natural gas and corporate jets.

He is behind plans recently unveiled to build a gas pipeline that would unlock 35 trillion cubic feet of natural gas - and perhaps three times as much that remains unproven at the moment - on Alaska's Northern Slope. This is critical to plugging a growing US supply gap.

Even the 11 September attacks proved profitable for Buffett's insurance businesses, which these days provide the backbone of his empire. Buffett warned that anywhere in America was a potential target. His comments helped push terrorism premiums through the roof - and straight to his bottom line. Buffett's General Reinsurance is a leading provider of terrorism cover, although it took a multi-billion-dollar hit in the wake of the attacks themselves. Buffett has, in the last few weeks, won a licence to trade reinsurance in China.

And when Buffett changes his mind, it invariably seems to work. When he put aside his much-trumpeted aversion to technology, it was a very lucrative decision. In 2002 he invested $100m in technology through a stake in Level 3 Communications, which bought up distressed cable businesses. US stock market filings last February showed Buffett sold out of Level 3 at $200m, doubling his money.

But in recent weeks, the gloss has come off. Buffett is sitting on a massive cash pile of more than $40bn - twice that of a year ago - which he admitted is earning negligible interest.

His last set of results saw first-quarter profits drop 10 per cent. Having lost faith in the equity market, Berkshire moved $12bn into five separate currencies - his biggest single investment in the past two years. He has bet huge sums on the continuing fall of the dollar thanks to its trade deficit.

But he bungled an $18bn bet on a weaker dollar last quarter and lost as much as $600m in five weeks. The results wiped out $6.8bn of shareholder value in just one day in May.

Meanwhile, investors are getting increasingly nervous as to who will take over when he eventually retires. And in recent months, there have been calls led by Calpers, the Californian state pension fund, for him to step down from the board of Coca-Cola, where he is a significant shareholder, although Buffett easily defeated this attempt.

Last week's move to be part of a possible consolidation at Lloyd's of London took industry insiders by surprise. The insurance market in recent years has seen premiums rocket but analysts say this is beginning to change. Premiums rose sharply after 11 September but this was as much to do with the collapse of equities.

In the bull market, insurance firms were making a loss in their underwriting businesses. The premiums they received failed to cover pay-outs. It was only booming stock markets that kept firms in profit. Once equities collapsed insurance firms had to raise premiums because there was nothing to bail them out.

As a result, last April Lloyd's saw its annual profit more than double. The market reported a £1.9bn profit, compared with £834m the year before and a loss of £3.1bn in 2001.

The increase was due to a 10 per cent rise in premium income to £11.7bn while claims rose just 1 per cent to £6.7bn. The profits have been put down to a lack of natural or man-made disasters. But industry leaders say that those who point to massive profits should remember that the second half of the Nineties saw Lloyd's in dire straits.

So, insiders say Buffett is taking a punt on three factors: first, that the market is still undervalued; second, that a new franchise management system will increase transparency in Lloyd's notoriously opaque market; and third, that by consolidating the market, Buffett will stand to gain because premiums, which have begun to fall again, will rise.

Sceptics doubt whether it is possible for the Lloyd's market to consolidate. While many have thought it desirable because the floated Lloyd's firms are too small to demand attention from analysts and investors, the egos of those who run the syndicates have proved a stumbling block.